TaxTMI 
TaxTMI 
2017 (7) TMI 110
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....(P) Limited is situated at Plot No. 121 and 122, Phase-I, Katunayake Export Processing Zone, Katunayake, Sri Lanka. 4. The Registered Office of Petitioner Bank is situated at Corporate Centre, State Bank Bhavan, Madame Cama Road, Mumbai-400021. The Branch Office of the Petitioner Bank is situated at Office No. 16, Sir Baron Jayatilake Mawatha, Colombo, Sri Lanka. 5. Shri Pankajkumar Pathak, who is working as Chief Manager, State Bank of India, is the Authorised Signatory of the Petitioner Bank. 6. Petitioner Bank extended credit facilities to M/s. Haikawa Industries (P) Limited, which has been duly guaranteed by M/s. Western Refrigeration Private Limited and M/s. Indo Western Refrigeration Pvt. Ltd., by way of Corporate Guarantee and the Directors in their personal capacities as 'Guarantors'. 7. The Principal Borrower, M/s. Haikawa Industries (P) Limited, Colombo had defaulted in payment of financial assistance given to it. Inspite of several demands and reminders, M/s. Haikawa Industries (P) Limited has failed and neglected to make repayment and honour the terms and conditions of the Loan Agreement entered into between the Principal Borrower and the Bank. 8.....
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....ting to the proceedings pending before the Hon'ble High Court of Colombo. The matter was listed on 19.5.2017 for hearing before admission. The Managing Director of the Respondent Company filed Affidavit along with Guarantee Agreement dated 14th January, 2008,; letter dated 30.3.2010 revoking the Guarantee; copy of the notice dated 10.10.2012 issued by the Petitioner Bank to the Respondent Company and others; copy of the letter dated 1.11.2012 addressed to Mr. Bharat H. Mehta, Advocate for Petitioner Bank by the Respondent Company, copy of the Original Application No. 242 of 2013 filed before the DRT No.3, Mumbai by the Petitioner Bank against Respondent Company and its Directors; copy of the Plaint filed by the Respondent Company against the Petitioner Bank before the Hon'ble High Court of Western Province Holden in Colombo exercising civil jurisdiction. On 19.5.2017, arguments of learned counsel for the Petitioner and learned counsel for the Respondent were heard. At the concluding stage of arguments, learned counsel for the Petitioner filed Written Arguments. 11. It is the case of the Petitioner Bank that the Guarantee Agreement dated 10.1.2008 is a continuing Guarante....
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.... from 1.11.2012 till the date of payment and issue of Recovery Certificate accordingly and for other reliefs. 12.2 Respondents stated that the Company filed a Declaratory Suit before the High Court of the Western Province Holden in Colombo exercising civil jurisdiction bearing No. CHC/233/2013 MR seeking declaration that the alleged Corporate Guarantee dated 14th January, 2008 is void ab initio and non est; and for a declaration that the Respondent Company herein should discharge from the aforesaid incomplete guarantee with effect from 22nd April, 2009; and for a declaration to declare that the alleged Corporate Guarantee dated 14th January, 2008 stand cancelled/determined/discontinued as unenforceable in law; and for a further declaration that the Petitioner Bank herein is not entitled to initiate any action against the Respondent Company herein in Sri Lanka or any other jurisdiction with regard the above said Guarantee. According to the Respondent that Suit is pending before the High Court of Western Province Holden, Colombo exercising civil jurisdiction. According to the Petitioner Bank, date of default is 10th October, 2012 and therefore Petitioner could have very well filed....
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....instrument issued by a bank or financial institution; (i) the amount of any liability in respect of any of the guarantee or indemnity for any of the items referred to in sub-clauses (a) to (h) of this clause;" Petitioner Bank filed only Guarantee Agreement dated 14th January, 2008 and the Statement of Accounts of M/s. Haikawa Industries (P) Limited, (Principal Borrower) for the period from 10.10.2012 to 14.3.2017. From the above said guarantee documents, it appears that the Principal Borrower, M/s. Haikawa Industries (P) Limited, was granted Cash Credit Loan; and Working Capital Term Loan. 14.1 Sub-clause (i) of sub-section (8) of Section 5 says that the amount of any liability in respect of any guarantee for any of the items referred to in sub-clause (a) to (h) is a 'financial debt'. Therefore, the amount lent to the Principal Borrower by the Petitioner Bank and for which the Respondent Company stood as a Guarantor amounts to 'financial debt' and therefore Petitioner Bank is a 'Financial Creditor'. 14.2 Respondent is a 'Company' registered under the Companies Act, 1956. 14.3 Sub-section (7) of Section 3 defines....
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....Respondent also filed the postal receipt of the Courier. Petitioner Bank did not deny the receipt of the letter dated 30th March, 2010 whereby Guarantee Agreement dated 14.1.2008 was revoked. On the other hand, Petitioner Bank having received the letter dated 30th March, 2010 did not make any whisper about it in the legal notice dated 10.10.2012 which was issued nearly two-and-a-half years after the revocation of the Guarantee. Therefore, the cause of action, if any, is there for the Petitioner Bank against the Respondent Company it was either on the day on which the revocation of the Guarantee i.e., 30th March, 2010 or at least on 1.11.2012 when the reply notice was received by the Petitioner Bank. The revocation of Guarantee and reply that the Agreement is unenforceable certainly amounts to refusal to pay as per the Guarantee Agreement dated 14.1.2008 unless the Bank concedes to the action of the Respondent Company. Therefore, the issuance of legal notice dated 13.02.2017 and its reply dated 27.2.2017 by any stretch of imagination do not constitute a first demand or the first refusal by the Respondent Company. Therefore, the first contention of the learned counsel appearing for t....
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....eas in a petition filed under Section 7 by a 'financial creditor', the job of ascertaining the existence of default from the records of the information utility or on the basis of evidence furnished by the financial creditor and the satisfaction that default has occurred, is there on the Adjudicating Authority. While dealing with the Petitions filed by the Operational Creditor, the satisfaction or otherwise of the Adjudicating Authority regarding ascertaining the existence of default or the satisfaction regarding occurrence of default is not required. What is the criteria for admission of an application filed by the Operational Creditor under Section 9 of the Code is the Application must be complete; there must not be any repayment of unpaid operational debt; demand notice would have been given to the Corporate Debtor; notice of dispute would not have been received by the Operational Creditor; and there shall not be any disciplinary proceeding against the Interim Insolvency Resolution Professional. Therefore, in case of Operational Creditor, demand notice is contemplated and in response to such a demand notice if the Corporate Debtor informs the Operational Creditor that the....
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....equences are having far reaching effect on the Company. 18. It is further contended by the learned counsel for the Petitioner Bank that the proceedings before the Court in Colombo has no bearing for the purpose of this Petition under Section 7 of the Code. 19. The contention of the learned Counsel for the Petitioner Bank that the proceedings before the Court in Colombo has no bearing for the purpose of this petition under Section 7 of the Code needs a careful scrutiny. In the Petition or in the Additional Affidavit filed by the Petitioner, it is nowhere stated that Respondent filed a Civil Suit against the Petitioner Bank before the High Court of Western Province Holden in Colombo which is exercising original jurisdiction. It is the Respondent, along with Affidavit of Managing Director of Company brought on record the copy of the Plaint in CHC-233/2013 MR filed before the High Court of Western Province Holden in Colombo. A perusal of the said Plaint clearly goes to show that Plaintiff therein (Respondent herein) prayed for the following reliefs; "a. Make a declaration that the aforesaid alleged corporate guarantee dated 14 January 2008 furnished by the Plaintiff Comp....
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....odged its claim by filing Form 10 under Rule 14 for an amount of USD 1.5 million along with 6% interest as on 2nd February, 2012; (viii) The Court in India has no jurisdiction to entertain any dispute in relation to Credit facilities availed by HIPL or the alleged incomplete and invalid Guarantee Agreement. 21. The Petitioner Bank is not in position to deny the knowledge of the proceedings in the Suit in Colombo High Court. From the above said prayers made in the Plaint in CHC 233 of 2013 before the High Court of Colombo, Respondent herein has taken several pleas attacking the validity of the Corporate Guarantee including the alteration of sanction of terms and jurisdiction aspect also. 22. In this Petition, in case if an admission order is passed, this Adjudicating Authority shall issue an order of Moratorium under Section 13 of the Code in the matters covered by Section 14. The Moratorium order results in prohibition of continuation of pending suits or proceedings against the Corporate Debtor including execution of any judgment, decree or order. In case if a moratorium order is passed by this Adjudicating Authority, in my considered view it may not be binding on th....
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....rding obligation arising out of the Guarantee Agreement after the notice dated 10.10.2012 issued by the Petitioner Bank to the Respondent Company. He submitted that for the first time Respondent refused to make payment only on 27th February, 2017 and therefore the claim of the Petitioner is not time barred. He further contended that the Petitioner Bank filed proceedings against the Respondent Company before the DRT, Mumbai within the period of limitation and therefore the question of computing limitation from the date of default does not arise. He further contended that law of limitation is not a bar in filing of the application or admission of the application. 25. Learned Counsel appearing for the Respondent Company contended that on 30th March, 2010 itself, Respondent Company revoked the Guarantee by way of a letter and the said letter was received by the Petitioner Bank and therefore Respondent is not under an obligation to pay any amount that arises out of the Guarantee Agreement. In support of his contention, he referred to Clause 8 of the Guarantee Agreement dated 14.1.2008 which reads as follows; "(8). This guarantee shall remain in force and be binding as a cont....
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....itor or Corporate Debtor. It is pertinent to mention here that, under the Companies Act, 1956, there is no provision which says that Limitation Act is applicable for the proceedings before the Company Law Tribunal or the Company Court. But in the Companies Act, 2013, Section 433 deals with Limitation aspect. Section 433, which came into force with effect from 1.6.2016, reads as follows; "The provisions of the Limitation Act, 1963 (36 of 1963) shall as far as may apply to the proceedings or appeals before the Tribunal or the Appellate Tribunal as the case may be." The wording used in Section 433 is that the provisions of the Limitation Act, 1963 are applicable to all proceedings before the Tribunal. It is not stated in Section 433 that the provisions of Limitation Act are applicable for the proceedings before the Tribunal in respect of the provisions of the Companies Act, 2013 alone. 26.2 "National Company Law Tribunal" is the Adjudicating Authority under the Insolvency Code in view of Section 60 of the Insolvency and Bankruptcy Code, 2013. Therefore, any proceeding initiated under the provisions of the Insolvency Code before the Adjudicating Authority shall be treate....
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....of the Insolvency Code, the remedy of winding up was available to the Petitioner Bank under Section 433 and 434 of the Companies Act, 1956. But no such remedy was availed by the Petitioner. It is only after the Insolvency and Bankruptcy Code came into force, the Petitioner Bank again issued a notice dated 13.2.2017 and filed this Petition. In the Written Arguments filed by the Petitioner, it is mentioned that the Respondent Company refused to make payment through its letter dated 27.2.2017 after the receipt of the notice dated 13th February, 2017 from the Bank and therefore the claim of the Petitioner is not barred by limitation. This argument is already answered by this Adjudicating Authority in the earlier paragraphs. The refusal of Respondent to pay the amount if any due from the Principal Borrower, under the Guarantee Agreement dated 14.1.2008 was there on 30th March, 2010 itself or at least on 1.11.2012, when a Reply Notice was given by the Respondent to Mr. Bharat Mehta, Advocate for the Bank. Therefore, the argument of the learned counsel for the Petitioner that the claim of the Applicant is within time and is not barred by limitation on the ground that the refusal is there ....
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.... is guaranteed by the guarantor undertaking to pay on demand by the creditor, under a continuing guarantee dated 1-4-1991. Let us further say a demand is made by the creditor against the guarantor for payment on 1-3-1993. Though the limitation against the principal debtor may expire on 1-6-1994, as the demand was made on 1-3-1993 when the claim was "live" against the principal debtor, the limitation as against the guarantor would be 3 years from 1-3-1993. On the other hand, if the creditor does not make a demand at all against the guarantor till 1-6-1994 when the claims against the principal debtor get time-barred, any demand against the guarantor made thereafter say on 15-9-1994 would not be valid or enforceable." In the case on hand also, the Guarantee is a continuing Guarantee. There was a demand for payment on 10.10.2012 itself. There was a refusal on the part of the Respondent by revocation of Guarantee on 30th March, 2010 and by giving Reply on 1.11.2012. Therefore, period of limitation starts running either from 30th March, 2010 or from 1.11.2012, but not from 27.2.2017 as stated in the Written Arguments of the learned counsel for the Petitioner. Ascertainment of Defau....
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....ration is upper-most in the mind of this Adjudicating Authority. In that direction, it is necessary to take guidance from the Judgments of the Hon'ble Supreme Court in winding up matters under the Old Code. The leading Judgment of the Hon'ble Supreme Court on this aspect is in the case of Madhusudan Gordhandas & Co. v. Madhu Woollen Industries (P.) Ltd. AIR 1971 SC 2600. Following the said decision, the Hon'ble Delhi High Court in Niyogi Offset Printing Press Ltd. (supra), held as follows; "25. The rules as regards the disposal of winding-up petition based on disputed claims are thus stated by the Apex Court in Madhusudan Gordhandas & Co. v. Madhu Woollen Industries (P) Ltd. The Supreme Court has held that if the debt is bona fide disputed and the defense is a substantial one, the court will not wind up the company. The principles on which the court acts are: (i) that the defense of the company is in good faith and one of substance; (ii) the defense is likely to succeed in point of law; and (iii) the company adduces prima facie proof of the facts on which the defense depends." 30. In the Judgment of the Delhi High Court, there was ....
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.... a declaration that the guarantees executed by the defendants in that suit from time to time are valid, subsisting and binding on the said defendants. One of the said defendants in the said Suit is the Respondent herein. More so Respondent also filed a suit for declaration that the Guarantee dated 14.1.2008 is not a valid guarantee before the High Court of Colombo which is void. The said Suit is also pending before High Court of Colombo. Several pleas were taken by the Respondent in the Suit filed by him before the High Court of Bombay against the Petitioner Bank which have been already narrated in this order which includes jurisdiction aspect of Courts in India. Therefore, even in the year 2012 and 2013 itself, there are proceedings by both parties in respect of this Guarantee Agreement dated 14.1.2008. From the material placed on record and from Clause 8 of the Guarantee Agreement, it is clear that Respondent Company is entitled to revoke the Guarantee by giving one month notice. When such is the case, the pleas taken by the Respondent in this Petition in respect of the Guarantee Agreement or the pleas taken by the Respondent in the Suit filed by it in the High Court of Colombo o....
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.... enforceable. But the intermittent actions that are being taken up by the Petitioner Bank shows that it chose to have a chance remedy under the Code by suppressing the material facts including the revocation of Guarantee Agreement dated 14.1.2008. The incomplete record placed by the Petitioner Bank amounts to misleading also. 35. Coming to suppression of material facts, except the Petitioner's saying that proceedings before DRT are pending, it did not choose to file any papers relating to the proceedings before DRT. Petitioner totally suppressed the Suit filed by the Respondent before the High Court of Colombo. Petitioner having knowledge about revocation of Bank Guarantee, did not disclose about the same. Inspite of direction given by this Authority on 17.5.2017 to parties, Petitioner not filed documents relating to proceeding before DRT. Petitioner shall file the copies of Entries in Bankers' Book in accordance with the Bankers' Books Evidence Act. But it is stated by the Petitioner Bank that it has not maintained the account of the Respondent since it is a Guarantor, and, so saying, it filed Account Statement of a Principal Borrower for the period from 10.10.2012 ....